Adaro Energy creates maximum sustainable value along our pit-to-power value chains to provide reliable energy and help build Indonesia. This is what drives us and is why we are so passionate about building a great company.
The global coal industry faced strong headwinds in 2019 as a result of slower global economic growth, structural changes in the Atlantic market as well as increased competition from other energy sources in some parts of East Asia. Against the backdrop of an uncertain environment, PT Adaro Energy Tbk (AE) was able to deliver on our operational and financial targets thanks to the solid results delivered by each business pillar. We were also proud with the company’s success in achieving commercial operation for PT Tanjung Power Indonesia’s 2x100 MW power plant in South Kalimantan. For this, we think the management deserves a huge applause for their achievement in delivering satisfying results despite the industry headwinds.
Challenging Market Conditions
The global economy had to deal with the consequences of trade wars between the US and China, which at times forced temporary supply and demand imbalances in the coal market. Added to this, the abundant supply of gas has also put coal price under pressure throughout 2019. However, we continued to see strong seaborne thermal coal market trade in 2019 while the price of low CV coal fared relatively better compared to the benchmark coal price.
In an unfortunate turn of the world’s development, 2020 started with a global pandemic that has affected more than 170 countries worldwide. Covid-19 has pushed most countries to enforce containment measures that have severely constrained business and industrial activities, which will have dire impact on the global economic growth. We expect that this condition will put additional pressure on the already subdued coal market and therefore we need to continue our cost control measures, and maintain a solid balance sheet to protect us in this challenging time and to ensure that we can ride out the downturn.
Review of Work Plan and Performance
We are cognizant of the cyclical nature of the coal market and extend our full support to the Board of Directors for their strategies to maintain operational excellence and strong cost discipline across the company’s safe, efficient, and effective operations. We encourage them to continue pursuing more growth opportunities because we believe AE has developed and applied the right business model, which enables the company to generate solid and stable revenue contributions from the non-coal business pillars to buffer the volatility of coal. This business model is proven to be resilient and is a key factor to the company’s value creation endeavors. With volume growth and cost control among the factors that enabled AE to deliver on its 2019 operational and financial guidance, AE managed to maintain solid profitability on the back of the resiliency of this integrated business model while dealing with the less favorable coal market condition.
We are also pleased with the management’s leadership over the safety measures. They implemented various programs to cultivate a strong safety culture across the Adaro Group to ensure that safety discipline is applied in every operational activity. As a result, AE recorded a year of highest production volume in its history without any fatality. However, we would like to remind the management that we must not be complacent with this achievement. We must continuously improve what we have accomplished.
As part of our commitment to continuously improve operational excellence, in 2019, the Board of Director launched the Adaro Management System, which aims to ensure that all companies within the Adaro Group conduct operational activities effectively and productively in such a way that deliver products and services with the highest quality and cost efficiency. The program has been communicated throughout the Adaro Group and we expect that this will encourage innovation and continuous improvement at all levels.
We maintain frequent communication with the Board of Directors through regular and impromptu meetings to ensure that we get updated on various company’s aspects with accurate information. This was our effort to ensure that the management executes business plans and strategies with full adherence to our Code of Conduct and the applicable regulatory requirements. Further, we receive information and reports from all of committees in the company so we can have objective perspectives on the developments within the company. We are in a view that the Board of Directors has performed its management and executive functions well in 2019.
Compliance and Implementation of Good Corporate Governance
We observe that the management has dedicated their best efforts to make good corporate governance (GCG) an integral part of AE’s operations and pursue the highest level of compliance to its principles. This includes conducting periodical reviews and evaluations on the implementation of GCG principles to identify improvement options and necessary adjustments and carrying out operations within compliance with the prevailing laws and regulations.
The company also continues to instill the Adaro Values of integrity, meritocracy, openness, respect and excellence among the employees, as the guiding principles for their behaviors at work and implementation of work activities. A set of compliance-based code of conduct that specifies and guides the implementation of the corporate values and principles as the standard of behavior has also been formulated and promulgated.
In the application of the GCG principle of transparency, AE strives to disclose information to the regulator and the public according to the provisions of the prevailing rules and regulations. In June 2019, the BOC has updated the BOC Charter based on the latest development of GCG principles, capital market rules and regulations, and other applicable provisions.
Changes to the Board of Commissioners’ Composition
Our AGMS on 30 April 2019 approved the appointment of Mohammad Effendi as the company’s new Independent Commissioner. His appointment was intended to increase the number of Independent Commissioners in the Company’s Board of Commissioners. We are making sure that we continue to improve our efforts to safeguard the rights of our minority shareholders and relevant stakeholders.
Gratitude and Appreciation
In closing, we greatly appreciate the Board of Directors’ performance and commitment to value creation, and on behalf of the Board of Commissioners, I would like to congratulate the management and all employees for their conscientious efforts in growing Adaro Energy into a leading Indonesian mining and energy group. We also thank our shareholders and stakeholders for their unrelenting support for Adaro Energy.